1. Technical Field
Various embodiments of the present invention relate to financial models and, more particularly, to systems and methods for modeling or simulating financial data.
2. Description of Related Art
Conventionally, financial planning is based on meeting specific, predetermined goals without regard to an overall scientific picture of an entity's financial circumstances. To meet the predetermined goals, financial planners or analysts generally use trial and error approaches to determine which financial decisions are likely to be most successful in reaching the goals. Accordingly, because trial and error approaches tend to be based on little more than deductive reasoning, resulting financial decisions are not based on scientific study of an entity's finances. Many financial plans fail because they are too heavily focused on linear mathematical calculations that are based on a singular or one dimensional task. Consequently, when creating a financial plan via conventional methods, initial targets and goals are likely flawed. Additionally, it can be expected that not all factors will be properly considered in attempting to meet those targets and goals.
In the majority of financial plans, an objective is identified and then quantified into a specific future financial need. For example, a couple may decide that they want to send their child to an expensive private university. It may then be determined that couple will need to save approximately $140,000 in the next eighteen years. Next, a deficiency study is undertaken by subtracting the quantification of existing financial resources from the future need. Finally, one or more financial plans can be undertaken to overcome the deficiency. Continuing the previous example, if the couple's current savings plan would enable them to save only $75,000 in the next eighteen years, they would need to develop a new savings plan, or supplement their current savings plan to make up the additional required $65,000. Various financial products would be recommended to the couple to assist them in saving the additional required funds. Although the above example is simplified, this process of analyzing the couple's finances is representative of a conventional financial deductive process, which is too one-dimensional to provide an accurate picture of an entity's complete financial situation. Such deductive reasoning is further inaccurate and flawed for failing to apply real-life erosionary properties of money to a financial plan.
To institute financial order and control, the financial industry introduced a balance sheet. The balance sheet, however, fails to provide a solution to the problem of one-dimensional financial planning. The balance sheet merely provides a list of a person's assets and liabilities, and subtracts the liabilities from the assets to produce the person's estimated net worth. As with other financial tools, however, balance sheets do not offer a scientific approach to finances. Balance sheets can only linearly quantify net worth. Balance sheets cannot provide consumers with information regarding effectiveness, efficiency, predictability, or verification of financial decisions.
Therefore, there is a need for a financial tool to effectively model an entity's financial performance. Preferably, such a financial tool can aggregate multiple financial products to provide a complete financial assessment. Further preferably, the financial tool can provide a visual representation to enable users to better understand the complete financial assessment. It is to such a financial tool that embodiments of the present invention are directed.